Investors have seen bluebird bio's (BLUE 9.19%) share price skyrocket following impressive early-stage trial results for bb2121, a multiple myeloma gene therapy that's licensed to Celgene Corp. (CELG). The excitement stems from a potential to leverage Celgene's dominant market position in multiple myeloma to turn bb2121 into a multibillion-dollar moneymaker. Here's how bluebird bio will benefit if that happens.

A deal worth making

Celgene's been working with bluebird bio under a research collaboration since 2011, but it reworked its collaboration agreement in 2015 so that it includes bluebird bio's research on gene therapies that target BCMA, a protein commonly expressed on the surface of multiple myeloma cells.

A man sitting with his back to a wall as paper money falls down from the sky around him.


That looks like a wise choice given that the early results for bb2121 are nothing shy of game-changing.

At the American Society of Hematology conference earlier this week, bluebird bio unveiled results showing that bb2121 delivered a 94% overall response rate, including 56% of patients who achieved a complete response. What makes those results so impressive is the fact that people participating in this trial are among the sickest patients with multiple myeloma. On average, they have already tried and failed or not responded to seven therapies.

To put bb2121's performance in additional context, consider that past drugs on the market for fourth-line or higher use in multiple myeloma were approved based on overall response rates in the 20% to 30% range. Johnson & Johnson's (JNJ 0.70%) Darzalex, for instance, won approval with a 29% overall response rate and a 3% complete response rate.

What's bluebird bio going to get?

If bb2121 delivers in its pivotal trial anything close to the efficacy and safety it's seeing now, it's hard to imagine it won't win regulatory approval. There's simply too big of a need for late-line treatment options for these patients.

If I'm right, then bluebird bio could be about to come into a lot of money, either through milestones and royalties or by exercising its option to co-commercialize bb2121 in the United States. 

Under its agreement with Celgene, bluebird bio will be reimbursed for bb2121's manufacturing costs, plus a small markup. While it could choose to receive milestones plus a royalty ranging from the mid-single digits to low teens, it's already said it will exercise its option, and if it does, then it will split costs and profit on bb2121 in the U.S. After exercising its option, it can still receive up to $10 million in clinical milestone payments and up to $54 million in ex-U.S. regulatory milestone payments, plus $36 million in ex-U.S. commercial milestone payments. Furthermore, it's entitled to tiered royalty payments from the mid-single digits to low teens on sales outside the U.S.

Big money at stake

The multiple myeloma market is worth billions of dollars, and no one is a bigger player in that market than Celgene.

Celgene markets the top-selling first- and second-line treatment, Revlimid, and the best-selling third-line treatment, Pomalyst. Celgene expects to more than $8 billion in Revlimid revenue and $1.6 billion in Pomalyst revenue this year alone.

If bb2121 is eventually approved as a fourth-line therapy, it may cut a little into Pomalyst revenue, but it will probably cut more into demand for Darzalex, Kyprolis, and Empliciti, especially since Celgene is conducting studies that could move Pomalyst up to a second-line therapy.

For perspective, J&J reported that Darzalex's sales nearly doubled year over year to $317 million in Q3.  Meanwhile, Amgen's (AMGN 1.91%) Kyprolis sales were $207 million worldwide and Bristol-Myers Squibb's (BMY 0.38%) Empliciti generated $60 million in third-quarter global sales. Amgen recently reported data, however, that could make Kyprolis more common in earlier-stage treatment, somewhat insulating it from bb2121. In trials, using Kyprolis alongside Revlimid and dexamethasone reduced the risk of death by 21% versus Revlimid and dexamethasone alone.

Nevertheless, given bb2121's efficacy, it's hard to imagine that it won't become the go-to therapy in fourth-line treatment, and that alone should be good for nine figures in sales annually. Split that in half and you're talking about a nice windfall, conceivably as early as 2019. The real money for bluebird bio, however, could come later on. Celgene and bluebird bio are investigating bb2121 in earlier-line treatment and they're working on bb21217, a second-generation version of bb2121. If those studies go well, one of those therapies might become Revlimid's successor someday.